My previous Dispatch talked about China’s growing taste for “Made in America.” This Dispatch will cite one specific case where an American company seems to be doing what it takes to “make it in China.”
THEN: From a China Daily story July 2008.
Lin Huijuan has 45 handbags in her handbag closet. She is going to get one more because none of the bags match her new Prada shoes.
An elegantly dressed marketing manager Lin, 37, said she wouldn’t consider herself a fashion and accessories spendthrift. Compared to many other women of her age in Shenzhen, where she lives and works for a business consulting firm, she feels she is just keeping up.
“Handbags are the ultimate status symbols in modern life, and I would like to have prestigious branded bags. They also carry my status, and they have to match my clothes and shoes of course,” she said.
The Chinese fashion and accessory market recorded double-digital growth annually over the last five years, as consumers increasingly became preoccupied with the trappings of wealth.
U.S. luxury handbag maker Coach Inc. aims to tap into that growth by opening 50 more Chinese stores over the next five years.
It expects China to become the company’s third-largest growth driver, betting on a growing number of middle-class female shoppers seeking fashion accessories that carry social status.
The New York-based group, which competes with its European rivals in China, is facing a tough economic climate in its home market where consumers are trimming spending amid the soaring gasoline and food prices.
Setting a sales goal
Coach will expand its sales network in China from nearly 30 stores to 80 by 2013; the country has the potential to quickly become the third major market for the company following North America and Japan, according to chief executive Lew Frankfort.
He declined to comment on how much the expansion will cost Coach, but said the company was aiming to be one of the top three imported handbag and accessory brands in China by 2013.
“We are targeting global annual sales to reach $250 million in five years, up from currently $30 million,” said Frankfort.
He expects sales from China to contribute 5 percent of the company’s turnover by then, rather than the current 1 percent.
Controlling the brand
To propel its local presence and better facilitate its sales in the promising market, Coach bought back its retail business on the mainland, Hong Kong and Macao from the current distributor Imagine X group.
Frankfort said the acquisition would allow the Coach team to focus on brand-building and direct management of the front end of the retail business where it directly touches the consumer.
Reducing costs
The company’s expansion plan also includes provisions to lower costs by finding efficiencies and/or lower costs.
Frankfort said rising labor costs in China, the world’s fastest growing economy and where the vast majority of Coach bags are made, may cause the group to subcontract more manufacturing outside of China.
“We are striving to make our existing manufacturing base more efficient to offset significant labor cost. We are also expanding into northern China, where costs are more affordable, and expanding production in India, and beginning production in Vietnam,” he said.
China will continue to be an important manufacturing base for handbag makers, Frankfort said, because the “vast majority of our bags are made in the country, which boasts large numbers of skillful manufacturing workers who are able to make good quality products.”
He said India is the next frontier after China, but infrastructure problems there prevented the company from developing immediate plans to enter the market, while Vietnam features cheap labor costs but “is not as efficient.”
Market positioning
The lower cost handbags are expected to be more attractive to customers than their European peers.
“We make our products in lower-cost countries, but the raw material comes from the finest mills and tanneries in the world,” said Frankfort.
“We provide Chinese customers with an alternative to the European luxury brands.”
Coach handbags retail for up to $1,100, but many are sold for half of Louis Vuitton.
China, the world’s third biggest consumer of high-end fashion, is buying more than $2 billion worth of upscale products a year, a figure that could top $11.5 billion as the world’s top brands grow in the market, said Ernst & Young in a report.
The U.S. group hopes to take a 10 percent share of China’s premium handbag and accessories market in 2013, up from 3 percent now.
“Coach handbags are not as prestigious as some brands. They use lower-graded leather than Louis Vuitton, but they are more international and boast very good quality,” Jessica Lam, a Hong Kong-based legal consultant and luxury handbag fan told China Daily.
NOW: From a China Daily Story March 2012
Sales from China’s 80 Coach outlets account for 6 percent of the company’s global sales, said Jonathan Seliger, president and CEO of Coach China. Fiscal 2011 sales in China reached $188 million, and that’s expected to rise to $300 million in fiscal 2012.
U.S.-based handbag maker Coach Inc. said on Tuesday that it would open 30 stores annually in China over the next few years.
Conclusion
Not bad for an American company which was looking to hit $250 million worldwide by 2013. Now you have an idea of what it takes to “make it in China.”
